Q.No 1. Discuss the meaning of International Business. What are the difficulties in it?

Ans. Introduction

During the past two decades, markets have become truly global for goods and services. There has been a rapid and sustained growth of international business. No country in the present age of globalization can remain aloof from the developments taking place around the world. Global events and competition affect almost all companies as they sell their products to other countries. Global corporations consider the whole world their production place-as-well as their market. Ownership and management of international firms have become transnational. A better understanding of international business may help you make more informed decisions.

1. Definition – International BusinessInternational business is any type of business activity that takes place between two or more countries. A company which engages in international business is known by different names such as International Company, Global Company, Multinational Company, Multinational Corporation, Transnational Company, etc.

In the simplest form, international business is defined as a business which sells its products or services to a buyer who live in another country. At the other end of the definitional spectrum, international business is equated with multinational companies, which have their operating units outside their home country such as General Motors, Ford, Samsung, and Toyota. In between these two, international business may take the form of joint ventures with foreign firms or governments.

2. Difficulties in International BusinessInternational business and domestic business have some similarities as well as some differences. It is because of differences that international business faces difficulties which are not there in case of domestic business. The special problems faced in international business are discussed below:

i. Differences in currency – Every country has its own currency and currency of one country may not be acceptable in another country. Exchange rate fluctuations also enhance the risk. These may sometime become a serious problem.

ii. Differences in the language – Every country has its own language and different dialects. Even same words in a language may have different meanings in different countries. In anyway, language hardly creates a serious problem in international trade as English language has virtually become business language across the world.

iii. Cultural differences – Differences in culture become a serious difficulty in marketing. Cultural differences sometimes become hindrances even in domestic business. International managers need to be aware of these differences.

iv. Political and legal differences – The political and legal environments in foreign markets may be different from the home market. All these differences can and do have major implications on international business. In international business a firm has to change its strategies depending upon political and legal set up of the country of it operations.

v. Trade Restrictions – International business may face the problem of import control and licensing in certain countries.

Q. No. 2 Explain the International PLC theory.

Ans. International Product Life Cycle Theory

This theory, developed by Vernon explains why a product that begins as a nation’s export eventually becomes its import.

A product has a “Life Cycle’ comprising of introductory phase, maturity phase, decline phase and end phase. A country which produces technically superior goods will sell these goods first in its domestic market and then to technically advanced countries. First developing countries will import and thereafter star manufacturing those goods, by which time the original innovator will have produced new goods. This results in diffusion of an innovation across a national boundaries. In this process comparative advantage shifts from developed countries to developing nations. Finally, the original innovators are no longer cost effective and start importing these products from their former customers. The moral of this process could be that and advanced nation becomes a victim of its own creation.

Q. No 3 Describe the forces that are leading International firms to the Globalizations of their production and marketing?

Ans. Globalization

The word globalization is discussed everywhere and by everyone. It may mean different things to different people. There is no widely accepted definition. People talk of social globalization, technological globalization, political globalization and so on.

However, it is widely accepted that globalization is the process by which an activity or undertaking becomes worldwide in scope. In international business, globalization refers to international integration of goods, technology labour and capital.

The International Monetary Fund defines globalization as the growing economic interdependence of countries worldwide through increasing volume and variety of cross-border transactions in goods and services and of international capital flows, and also through the more rapid and widespread diffusion of technology.

Globalization Forces

International firms are becoming global firms because of a number of forces which are driving them towards the globalization. These forces are discussed below:

1. Political Forces : Today, most of the countries are moving towards unification and socialization. Many preferential trading arrangements, such as NAFTA (North American Free Trade Agreement), European Union, ASEAN (Association of South-East Asian Nations). APEC (Asia-Pacific Economic Cooperation) have helped in grouping several countries into single markets. Moreover, many countries have removed barriers to trade and foreign investment. Privatization process initiated by many former communist countries has also opened doors of globalization for many firms.

2. Technology : Availability of network communication technology and computers has enabled information and ideas across borders. Firms can now advertise their goods and services to numerous countries, thus creating regional and global demand. Manufacturing personnel can easily co-ordinate production and other functions worldwide. The concept of worldwide web is very useful for firms to find suppliers and buyers. The result of all these technological development has enabled firm to go global in their operations.

3. Market: When the domestic markets are saturated, firms tend to go global in their market operations. Demand for products of many firms tempt them to go global.

4. Cost: Many firms resort to gloabalization in order to harness the economies of scale. The companies, can locate their production in countries where the cost of production becomes lower.

5. Competition : Competition in home market encourages many firms to globalize their operations.

Q. No 4. How are the Strategies formulated? What are the various levels of strategies formulation.?

Ans. Formulation of strategies

A firm has four options to formulate strategy. These are

1. Worldwide Integration : A firm may develop standardized products having global appeal and rationalize the operations throughout the world. This option may not be available for each and every product.

2. National Responsiveness : Subsidiaries may have the liberty to adapt products and services to suit the particular needs and political realities of the countries of their operations.

3. Regional Responsiveness : This option allows regional offices to have substantial freedom to co-ordinate the activities of local subsidiaries and adapt products and services to suit needs and political realities of the region of their operation.

4. Multifocal Emphasis : This option is a combination of worldwide integration and national responsiveness. Firms with multifocal strategies are difficult to manage.

Goal Setting for Strategy Formulation : Profitability and marketing goals usually dominate the strategic plans of most of the MNCs. Generally MNCs need higher profitability from their overseas operations because of higher risks and efforts involved in overseas operations. Another reason, for dominance of

profitability and marketing goal, is that they are more externally environmentally responsive.

Levels of Strategy Formlation : Strategy formulation is done at three levels – corporate, business and functional.

1. Corporate Level Strategy defines the domain of the business of the firm it intends to operate. Corporate level strategy focuses on issues related to business portfolio.

Approaches to Corporate Strategy

Growth Strategy Retrenchment strategy Stability strategy Combination strategy

Growth Strategy is concerned with increasing the size and types of activities of MNCs. It can follow two routes – Organic growth and Inorganic Growth. Organic Growth strategy relies on Greenfield projects whereas Inorganic growth

Includes mergers or acquisitions.

Retrenchment strategy implies reduction in scale or scope of activities of MNC by selling unprofitable or unrelated business units. Retrenchment strategy may be adopted during economic depression or high competition.

Stability strategy is adopted by an MNC when it does not want to expand its business activities and wants to maintain the present position.

Combination Strategy is a mixture of all the above. An MNC may adopt different strategies for different subsidiaries according to business requirements.

2. Business Level Strategies are formed for specific subsidiaries or operation units of the MNC. Business level strategy is based on general competitive strategy of the MNC. According to Porter, successful strategies must involve at least one of the following elements :

a. Cost leadership, e.g., through economies of scale or especially efficient production methods. The objective of the low cost strategy is to beat the competitiors.

b. Product differentiation, i.e., through making firms products look different and superior that of competitors. A successful differentiated strategy allows a firm to charge higher prices and gain customer loyalty for its products.

c. Serving a particular market segment not yet served by competitors. Focus may be on particular groups of buyers like youngsters or geographical areas like north or south of India.

3. Functional Level Strategies involve management of all functional areas such as production. Marketing, finance and human resources. Corporate and business strategies are implemented through functional strategies.

Q. No 5 Describe the potential sources of dispute between MNC and host country governments?

Ans. MNCs and Host Country Relations

Disputes between MNCs and host countries usually arise in respect of :

i. Control of MNCs and utilization of resources of host country; and ii. Division of profits resulting from MNCs local operations.

MNCs use the resources of the host countries in most efficient manner so as to gain the maximum ignoring the wishes of the local politician. The MNCs no doubt bring capital and technology and create employment in host country. The host countries on the other hand provide labour, raw materials and their natural resources and provide markets for the products of MNCs. MNCs argue that the high profits are generated by them because of their efficient management and hence they should be exempted from local taxes. On the other hand, Governments of host countries argue that since MNCs high profits accure because of their resources, a large part of their profits should be given to them in the form of taxes.

Some host countries in the beginning considered MNCs as exploiters and creators of many economic ills in their countries. Today, most of the countries take a more pragmatic view and do not consider them so. In fact, they recognize the importance of MNCs as they help in more efficient use of their resources, technology development and employment creation.

Negotiations concerning grants and subsidies, tax rates, tax holiday, foreign currency repatriation matters, technology transfer, representation of locals on the management, environment and human rights matters take place between the MNCs and host country government prior to the investment. The MNCs bargain on the strength of their financial, managerial, and technological resources, international image, etc. The host countries bargain on the basis of their natural resources and comparatively cheap labour.

Q. No. 6 Discuss the meanings and reasons for merger and acquisitions.

Ans. International Mergers and Acquisitions

International Mergers and Acquisitions also known as cross border mergers and acquisitions have become a tool of globalization. They affect the foreign direct investment flows and world economy. For the past several years, they have increased significantly. Cross border M&As are primarily concentrated in developed countries but such deals are also becoming popular in developing countries.

Most of the cross border M&As are taking place in automobiles, oil, banking and services industries.

1. Reasons for international Mergers & Acquisitions

For the firms which want to undertake Foreign Direct Investment, the most common technique used is cross-border mergers and acquisitions. A number of reasons are responsible for this phenomenon. These reasons can be:

i. Search for new marketsInternational mergers and acquisitions help a firm to get quick access to new markets in the foreign countries. When a company takes over an existing company in some foreign country, it will get immediate access to local network of suppliers, clients and skills.

ii. Quest for Strategist assetsMany firms merge with or acquire and existing company in a foreign country in order to have access to strategic assets, such as Research and Development facilities, technical know-how, patents, trademarks, and local permits and license and local network of suppliers and distributors.

iii. Risk ReductionThe desire for risk reduction motivates many firms to opt for international mergers and acquisition. M & As may help in reducing foreign exchange risks and operational risks. Larger market will spread the loss to many countries.

iv. Financial Gains.Undervalued companies may be valued fairly during the process of mergers and acquisitions. Stock prices do not always reflect the true value of a firm because of imperfections in the capital market. The other financial motive may be tax considerations such as lower taxes or unused tax shields.

v. Larger SizeLarge size operations result in economies of scale; financial, managerial and operational synergies. A large size firm can obtain funds at low cost. Larger firms having multiple operations across geographical locations and segments can have an advantage in the collection and adoption odf new information and innovation.

vi. Anticipated efficiency gainsThe most advocated justification for international M & As is the anticipated efficiency gains through synergies. Synergies can be static or dynamic. Static synergies include pooling of management resources, purchasing synergies, economies of scale in production, avoidance of duplication of many activities. Dynamic synergies may involve matching of complementary resources and skills to enhance a firm’s innovatory capabilities.